E360 attended our first Fiabci USA meeting in April 2012. Fiabci is the International Real Estate Federation. We received a warm welcome being hosted in Miami, Florida. The agenda for this meeting was focused on the real estate development frontier. E360 has a particular interest and coverage in frontier markets highlighted in our blog
back in July of 2011.
In case you missed it we took notes on some of the most relevant topics of the Spring Symposium as it relates to our business objectives. One such topic was highlighted by the presenter, Jason Dallara, from the U.S. State Department. He discussed challenges and opportunities for
international development organizations from his global real estate portfolio perspective based on 285 embassies and consulates in 180 countries. They have 41
developments under construction. Here is a summarized list his list of his top global development challenges and opportunities:
- lack of public info
- fee simple ownership
- thin markets
- valuation process
- State gets to reinvest their proceeds into
future residential real estate portfolio
- Strategic advantage’s with market shifts,
currency exchange rates and location where capital values are low relative to
- Opportunities in time horizon is long
With E360 being entrenched in 12 countries we have exhibited a similar experience with these challenges. Figuring out who owns the land can be long process and may never be completely figured out. In some cases the opportunity to own land can be limited only to a country’s’ citizens. Demand can be thin where locations are still developing the proper infrastructure. Finally, valuation is virtually always a challenge in frontier markets where there are concerns about data quality.
Anna Nadgrodkiewicz, Center for International Private Enterprise (CIPE), spoke about property rights and a new international property market score card. The main focus of CIPE is on anti-corruption and why property rights matter. Nadgrodkiewicz noted that property rights matter because they support the market base of the economy, enable investment and a framework for entrepreneurial spirit. An additional core value of property rights is to get a loan. Later in her
presentations she highlighted the new international property market score card the CIPE supports and makes accessible on their website. Finally, she discussed
their major focus on trying to get countries to computerize land records.
Robin Rajack, World Bank Latin America and the Caribbean region, discussed urban land planning policy effects on land markets and spatial forms. Rajack so accurately described this market region as obscure and ambiguous. This market characteristic was a common theme between the U.S. State Department and World Bank for frontier markets. Rajack noted the Latin American and Caribbean cities based in developing countries will triple from 200,000 km in 2000 to more than 600,000 km by 2030, while their population doubles, which set the agenda for public policy. Urban expansion is being largely driven by income growth and population drives spatial expansion He noted the World banks interests in defining policies that allow formal land supply to be responsive to effective demand of households and firms. Land use regulation can increase costs to move and thereby increase cost of land and limit the market. Finally, an interesting metric Rajack brought up was how “land affordability” is measured internationally by average land price equaling less than 3 years of annual income.
CBRE came to the symposium with the intriguing topic called, Where Institutional Capital Investment Happening in Latin America and Caribbean. These guys had a very strong pulse on institutional capital flows for the region. Capital investment in the region has significantly increased in the last 10 years. Smaller institutional deals ranged from $10-20 million with an ideal of $50 million from REITS and pension funds. They noted strong institutional interest in Brazil, Chile & Mexico (México to a lesser extent in the last couple of years). Secondary hot capital markets – Colombia, Costa Rica, Panama and Peru. Brazil is the largest investment market. Brazil is now getting to par of London and Manhattan and losing competitiveness. They are not seeing the foreign investment today as it did in the past due to policy risk. Brazil has indicated stable inflation with Sao Paulo and Rio reported as strongest regions. Mexico is the smallest with huge expected growth rates in the next 5 years. Mexico City has remained very resilient. They have more office product under construction right now than any other city in the region. Mexico City office space is transacted in US dollars. Argentine lease law is inhibiting their market from getting institutional interest. Colombia received most capital investment for new development, non-resell. Colombia has Sam Zell investing which brings stronger awareness to inventory. Investors focused on new development compared to resell. Puerto Rico has been very quiet. The other regions don’t have the stock of $50M+ for institutional interest. They are partnering with locals to maintain and own property. Chile’s office product is the only country’s primary transaction of interest. Peru is the new emerging market but not a lot of product available. Leases are in US dollars so no currency exposure. Costa Rica has tremendous amount of back office space. Financing is available. Hotel investor interest is focused on offerings with limited services and repositioning opportunities. The Westin and low economy
hotels are examples of recent capital investment interest. Costa Rica’s smaller market keeps the institutional awareness limited which is driving many opportunist private investors. Panama’s economy is being driven by 10.5% GDP and infrastructure investment. There are concerns of over developed residential
and urban hotel product. Back office is the market opportunity. Cap rates range between 9-11% with financing between 6-7%. Miami is gateway to the
Americas. The Chinese are the largest investors in Latin America. Privatization and deregulation have been supporting progress in the Latin America and Caribbean region the most.
Overall, we thought the Fiabci USA symposium covered some very relevant and insightful topics. The speakers were very high caliber. We had such a great time that we also decided to become Fiabci members. We are really looking forward to attending future Fiabci conferences.